Repression and Reform of the Financial Systems in India and China

Lawrence Sáez

Chapter Chapter 5 in Banking Reform in India and China, 2004, pp 75-99 from Palgrave Macmillan

Abstract: Abstract While transition economies aim to introduce market discipline into the operation of the domestic financial system, these countries suffer the residual impact of what the economist Janos Kornai (1980) labeled soft budget constraints. Soft budget constraints were defined by him as the situation where “the strict relationship between expenditure and earnings has been relaxed, because excess expenditure over earnings will be paid by some other institution, typically the state” (p. 4). Under these conditions, Kornai (1986) later suggested that soft budget constraints had many interrelated consequences on individual firms including weak price responsiveness, low allocative efficiency, and excess demand.

Keywords: Money Market; Nonperforming Loan; Capital Adequacy; International Accounting Standard; Soft Budget Constraint (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-4039-8125-7_5

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DOI: 10.1057/9781403981257_5

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